In the coming hours, U.S. key rates will become the main concern of investors as the Fed's verdict approaches. These rates are determined by a 12-member Federal Open Market Committee (FOMC). The FOMC generally meets eight times a year, but has sometimes held additional meetings (most recently in 2014, when 9 meetings were held). In 2018, meetings were held in January, March, May, June, July-August, September, November and December.

A decision under close supervision

Several financial market information providers (Thomson Reuters, Bloomberg, etc.) offer indicators to quantify the probability that the US central bank will change its rates. The exercise was never divinatory, but it was greatly simplified by the introduction of the concept of "Forward Guidance", i.e. a rate evolution trajectory. Some central banks have been using this strategy for a quarter of a century: it gives visibility to economic actors. In the United States, the Fed introduced it in 2003, but it was after the subprime crisis that it took on a new dimension, because individuals, companies and other central banks needed to be reassured as much as possible about the evolution of the world's leading economy.

The ECB has also been using it extensively since then. In the Frankfurt Bank's current press release, the "Forward Guidance" states: "The Governing Council expects the ECB's key interest rates to remain at their current levels at least until the summer of 2019 and, in any case, for as long as necessary to ensure the continuation of sustainable inflation convergence towards levels below, but close to, 2% over the medium term". The market knows that it does not have to wait (or fear, some might say) for a turn before at least next summer, or even later if inflation conditions are not met.

FedWatch

But let's get back to the Fed. Despite Forward Guidance, there are still some areas of uncertainty about FOMC decisions, in particular the rate of change in rates and their potential ceiling. The most widely used tool to anticipate future rates is the CME's "FedWatch", which is freely available. The FedWatch tool analyses Fed Fund futures contracts to provide a very accurate probability of change. In the example below (screenshot of December 17, 2018), the data shows a 78.4% chance of a rate increase on December 19. The tool also allows you to compare some of the previous expectations or visualize the expectations for the next meetings scheduled for 2019.

The Fed's decisions are always extensively commented on. They are even more so when they are followed by a conference to present the perspectives. This usually happens every second time, i.e. four times a year (at the end of the 2nd, 4th, 6th and 8th annual meetings of the FOMC). In contrast, the ECB holds a press conference after each of its meetings, which take place every six weeks. The FOMC on December 19 will be followed by a conference by its President, Jerome Powell. A pivotal intervention because it will probably validate a shift in the Fed's monetary tightening policy.